O’Brien: Considering The PayPal Mafia’s place in Silicon Valley history

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Slide Founder and CEO Max Levchin, at his company headquarters in San Francisco January 6, 2009. (Maria J. Avila Lopez/Mercury News)

With prototypes parked in the background, Tesla Chairman Elon Musk waits for the first production 2008 Tesla Roadster to arrive in America from England at Tesla's San Carlos headquarters Friday, Feb. 1, 2008. (Patrick Tehan/Mercury News)

Google’s purchase of social media company Slide for a reported $182 million earlier this month marked the latest triumph of a remarkable group of entrepreneurs and investors whose impact on Silicon Valley in the Web 2.0 era is unrivaled:

The PayPal Mafia.

That’s the alumni of the online payment company that went public in February 2002 and was acquired by eBay eight months later. They earned the nickname several years ago when PayPal alums started a string of successful companies.

But the acquisition of Slide, which was started by PayPal co-founder Max Levchin, got me thinking about how this network’s influence has continued to grow. Several PayPal alums have started companies since that initial flurry, while others have moved onto their next start-up, or have re-invested their wealth into their former colleagues’ ventures. In a region built on networks, the PayPal Mafia ranks as one of the most significant in the history of Silicon Valley.

It would be hard for any network to top the impact of the “Traitorous Eight,” the employees who left Shockley Semiconductor to start Fairchild Semiconductor. Almost every chip company in the valley, including Intel and AMD, can trace its roots to that group. Cisco Systems alumni have produced a string of startups, while Oracle has spawned countless business software companies.

But the reach of PayPal alumni compares favorably to those, and is more impressive if you consider that the company had only about 220 employees, not counting a mid-western call center.

The company’s IPO and sale to eBay generated huge wealth for several co-founders, including Elon Musk, who went on to co-found Tesla and Space X; Peter Thiel, who started a billion-dollar hedge fund called Clarium Capital Management, was the first investor in Facebook and launched the venture firm Founders Fund with two other PayPal co-founders; and Levchin, who created a startup incubator before launching Slide. But they weren’t the only PayPal alumni to move on to big things.

“You had a lot of people familiar with the startup process, but still hungry,” said Dave McClure, a PayPal alum and founding general partner at 500 Startups, a venture fund and incubator that just raised a $30 million investment fund this summer. “Many of us went right out and went on to the next company.”

Within a couple of years, PayPal execs Jeremy Stoppelman and Russel Simmons had co-founded Yelp; executive vice president Reid Hoffman started LinkedIn; and engineers Chad Hurley, Steven Chen, and Jawed Karim started YouTube, which Google bought in 2006 for $1.6 billion.

More recently:

David Sacks, PayPal’s chief operating officer, produced a movie called “Thank You For Smoking,” before starting Geni.com, an online genealogy service, and then Yammer, a social media platform for businesses. He’s also an active angel investor in several PayPal-related startups.

Ryan Donahue, who worked at PayPal from 1999 to 2005, just sold his company, FreshGuide, this summer for an undisclosed sum.

Jared Kopf worked just a few months at PayPal as Thiel’s assistant before the eBay deal closed, then joined his boss at Clarium before moving to Levchin’s incubator. Kopf started AdRoll in 2006 and then became chair after leaving last year to start HomeRun, an online coupon site where he is still CEO.

Keith Rabois, an executive vice president at PayPal, has become one of the valley’s most prolific angel investors while working at Clarium, LinkedIn, and most recently, Slide.

Kevin Hartz was one of the earliest investors in PayPal. He started Xoom in 2001, which was backed by Thiel and Rabois. He then left to start Eventbrite in 2005, where he remains CEO and just received a sizable investment from Stoppelman.

Eventbrite’s offices are located one floor below Sack’s Yammer in a San Francisco office building. Meanwhile, Hartz has also joined with Rabois and Karim to start Youniversity Ventures, which advises college students on starting companies.

“My personal strategy has been to stay close to this remarkably talented team,” Hartz said.

There are no definitive answers to the question of “Why PayPal?” Members of the network offer a number of theories. These include: PayPal founders did an extraordinary job of hiring smart people; PayPal had several near-death experiences, which created an intense bond among employees who have supported each others’ ventures since; PayPal pioneered the viral model of distribution that became a hallmark of Web 2.0 businesses; PayPal reinvented its business several times before finally finding success, teaching employees to keep pushing when success isn’t instantaneous.

“There was something about the whole experience that really focuses you on how to build a great company,” Thiel said. “If it’s too easy, you learn the wrong lessons.”

Members also note that things might have been very different if the company had not been sold.

“If we would have stayed independent, there would have been a reason for a lot of those people to stay there,” Stoppelman said. “It would have been adventure to take it from $1 billion to $30 billion.”

Instead, PayPal alumni formed a financial and idea network that was at once supportive and competitive.

“I think the biggest value is the brain trust and getting advice from people,” Sacks said. “The talent network is also just as important as the money.”

Consider this tale of PayPal serendipity.

Several years ago, while Rabois was working at LinkedIn, he attended a barbecue in the backyard of Mike Greenfield, a PayPal alum who was also at LinkedIn. Rabois bumped into former PayPal colleague Karim, and they started chatting about their new projects. Karim described a new company he had co-founded that would allow people to post videos online.

Rabois listened for about 30 seconds before asking Karim: “Can I invest?” A few days later, Rabois became one of the earliest investors in YouTube. A few weeks later, Rabois connected the YouTube co-founders with Roelof Boetha, the former PayPal chief financial officer who had become a partner at Sequoia Capital. Boetha led the firm’s investment in YouTube.

While PayPal alums have spent considerable time dissecting the phenomenon they’ve created, they’re far more reluctant to talk about their legacy.

“Once you start thinking too much about your place in history, you’re at a point where you’re no longer trying as hard as you should be,” Thiel said. “Whatever the final story of PayPal is, it’s not been written yet.”